Orbital Tracking Corp. — FY 2018 Form 10-K
Filing identity: The supplied filing is for Orbital Tracking Corp., not Nextplat Corp. It covers the fiscal year ended December 31, 2018, rather than only the fourth quarter. The company distributes satellite communications equipment and airtime, offers tracking services and rentals, and operates in the U.S. and internationally.
Key financial results
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $5.727 million | $6.005 million |
| Gross profit / gross margin | $1.035 million / 18.1% | $1.151 million / 19.2% |
| Operating expenses | $2.164 million | $2.708 million |
| Operating loss | $1.130 million | $1.578 million |
| Net loss | $1.195 million | $3.939 million |
| Cash used in operating activities | $590,185 | $315,245 |
| Cash at year-end | $142,888 | $233,326 |
| Total assets / total liabilities | $2.435 million / $1.056 million | $3.063 million / $1.204 million* |
At December 31, 2018, current assets were $715,157 and current liabilities were $1,056,287, resulting in negative working capital of approximately $341,130. Stockholders’ equity was $1,378,715; accumulated deficit was $9,735,421. The balance sheet shows no long-term debt, but includes $39,027 due to a related party and $112,397 of liabilities from discontinued operations.
Changes and drivers
- Revenue fell 4.6%. Management attributed the decline mainly to $476,439 in one-off 2017 contracts not repeated in 2018 and unusually strong 2017 hurricane-season demand. Comparable Orbital Satcom sales declined 10.4%; GTCL sales declined 1.7% in U.S. dollars.
- Gross margin fell to 18.1% from 19.2%, which management linked to a larger reseller mix and increased competition in U.S. marketplaces, including Amazon.
- Operating expenses decreased 20.1%, principally because professional fees fell by $301,795, including lower investor-relations, legal, public-company and underwriting costs. Selling, general and administrative expenses and payroll costs increased.
- Net loss improved substantially, largely because 2017 included $2.309 million of preferred-stock price-protection expense. Operating losses also narrowed, but cash used in operations increased.
- Financing provided approximately $532,000 in 2018, including $500,000 from Series J and Series L preferred-stock issuances and $32,029 in related-party proceeds.
Outlook, risks and unusual items
- Going concern: The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. Management said additional capital is required and planned to seek public or private financing; success is not assured.
- Product plans: Management hoped to bring its dual-mode cellular/satellite tracker to market in 2019, subject to funding, final testing and regulatory and compatibility certifications. Estimated completion costs were $50,000–$75,000; other planned tracking products were estimated to require $75,000–$100,000. The company reported no R&D spending in 2018 or 2017.
- Concentration and execution risks: Amazon marketplaces generated 37.3% of 2018 revenue, versus 25.7% in 2017. Network Innovations represented 42.8% of 2018 purchases. The company also cited supplier dependence, competition, currency exposure, key-person reliance and product-development risk.
- Controls: Management concluded disclosure controls were ineffective and internal control over financial reporting was not effective, citing limited internal audit resources and inadequate segregation of accounting duties. Management was pursuing accounting-software upgrades and other remediation.
- Equity and dilution: At December 31, 2018, outstanding preferred stock was convertible into approximately 2.215 million common shares; 1,185,667 options and 60,000 warrants were also outstanding. Conversion and exercise limitations apply. The company effected a 1-for-150 reverse split on March 8, 2018.
- Subsequent financing: In January 2019, the company issued a $65,000 convertible note bearing 12% annual interest, convertible after 180 days at 61% of the defined market price; default interest is 22%. In the same month, option exercises resulted in 324,285 common shares issued.
- No pending material litigation was reported. The company did not anticipate paying common-stock dividends.
Important facts for investors to verify
- Confirm the issuer: the provided document identifies Orbital Tracking Corp., whereas the request metadata names Nextplat Corp.
- Review the going-concern disclosures, near-term funding needs, available financing and any subsequent liquidity developments.
- Reconcile the apparent 2017 balance-sheet inconsistency: total assets are shown as $3,063,098, while total liabilities and stockholders’ equity are shown as $3,603,098.
- Reconcile revenue presentation: the income statement and MD&A report 2018 revenue of $5,726,572, while the geographic-revenue table totals $5,726,901.
- Check reported 2017 investing cash flow: MD&A states $26,448, while the audited cash-flow statement reports $33,193.
- Assess the full potential dilution from preferred securities, options, warrants and the January 2019 convertible note, including conversion terms and ownership limits.
- Track remediation of financial-reporting control deficiencies and the company’s dependence on Amazon and key suppliers.
*The 2017 balance-sheet figures are reproduced as presented in the supplied filing text; the stated totals do not reconcile.